Rand ends first week of lockdown over R19 to the dollar – after Fitch pushes South Africa deeper into junk

The rand ended a tumultuous week in a significantly weaker position, breaking through R19 to the dollar on Friday.

Th currency traded at record levels of weakness, at R19.05 to the dollar, R20.56 to the euro and R23.31 to the pound.

The rand started the week on the back foot after ratings agency Moody’s downgraded the economy on (27 March), as the country entered into a three-week lockdown.

South Africa’s economy has tracked global markets which have plummeted in the wake of a global coronavirus epidemic.

The country has been marred by persistently weak economic growth, high levels of unemployment, policy uncertainty, and prolonged power outages, which have all been a constant drain on the economy over the last few years.

While the Moody’s downgrade was arguably long overdue, according to economists and analysts, it still has the effect of forcing South Africa out of the World Government Bond Index, which could see as much as R88 billion in foreign investment wiped from the economy.

Following the Moody’s downgrade, ratings agency Fitch – which downgraded South Africa to junk in 2017 – took the country down one level further on Friday (3 April), adjusting its assessment of the country from BB+ to BB, with a negative outlook.

The agency cited “the lack of a clear path towards government debt stabilisation as well as the expected impact of the Covid-19 shock on public finances and growth” among reasons for its decision.

South Africa’s finance ministry acknowledged the downgrade and said it would implement structural reforms to address weak economic growth.

“Government is seized with addressing and minimising the impact of Covid-19, implementing measures to improve economic growth and setting government finances on a sustainable trajectory,” Finance Minister Tito Mboweni said in a statement.

Fitch said that it now expects the South African economy to contract by 3.8% in 2020 due to the 21-day lockdown.